Capital Budgeting Techniques

Last week I wrote about running a proper fundraising process. This week is about the decisions most founders get wrong: whether to raise at all, how much, from whom, and what kind of capital. First, raising external capital should be a last resort. Can you grow slower, stretch runway to profitability? Are there grants available? Can you take debt instead of equity to minimise dilution and maintain autonomy? These are the questions worth sitting with before you open a round. Second, do your due diligence on investors. Many founders I talk to are surprised by this. Once investors are on your cap table, it can be a venture-lifelong marriage. Bad investors can make your life hell, hinder decision making, create extra work, or even kill the company. Speak to their portfolio company founders about how they were treated in the good and bad times, and what value they really added versus the promise. Third, raise less than you think you need. A large round and high valuation feels like validation, but it often comes with heavy dilution, super-high expectations, and pressure that compounds founder stress. Far better to raise a smaller amount fast and oversubscribe than face a never-ending process. My preference is milestone-based raising. Raise what you need to hit clearly defined milestones over 18 to 24 months. Under promise, over deliver. Build trust and the next raise happens at a higher valuation with less dilution. Fourth, be deliberate about who you raise from. Most founders chase the biggest name or engage whoever knocks on the door first. Mistake. Prioritise investors who can genuinely help, have strong networks in your sector, can access the best talent, and can introduce partners and customers at C level. At PropertyGuru, that discipline allowed us to select the right partner at each stage, rather than whoever could write the biggest cheque. For climate founders specifically: what kind of capital do you actually need? Climate businesses are mostly physical, with upfront hardware requirements. Equity is expensive for that. Ideally you want a capital stack. Grant capital to fund R&D and de-risk first deployments. Equity to build the IP, team, brand, and operating platform. Debt to finance working capital and the assets. The challenge is that grant and debt capital remain scarce, immature, and heavy on admin in emerging markets. It is one area we collectively need to fix if we want to accelerate green adoption. Founders obsess over valuation. The ones who build the best companies obsess over funding strategy and process. This is part of a weekly series on scaling lessons from building PropertyGuru to NYSE and backing 40+ climate ventures. Follow along if useful.

To scale carbon removal, we need a financial architecture built for it. That’s the focus of the new piece Eneida Licaj and I wrote for the World Economic Forum. We break down why capital struggles to move and what’s needed to finance carbon removal at scale, including: 🔹Long-term offtakes that reduce risk and unlock predictable cash flow. 🔹A capital stack where risk, return, and tenor match the type of capital deployed. 🔹Targeted incentives - from policy tools like CfDs and tax credits to catalytic capital that can absorb early risk and crowd in institutional finance. 🔹Data infrastructure to support credit risk assessment and tie capital flow to progress. → We focus on the 'missing middle' in the capital stack - projects that are beyond early equity, but not yet bankable. Too risky for lenders, too capital-intensive for venture investors, and currently without the financial bridge needed to scale. → We also outline what corporates, governments, institutional investors, family offices, and development banks can do now  to help build a system that can price and allocate risk, deliver liquidity, and finance carbon removal infrastructure at the speed this decade demands. Special thanks to our expert reviewers for their input: Kash Burchett, HSBC Cindy J., ING Lucas Joppa, Haveli Investments Henry Waite, Kumo Max Zeller, Carbon Removal Partners and to Adam Sipthorpe & Hannes Junginger at Carbonfuture. 🔗 Link in comments. 📍If you're at WEF in January & working on financing climate infrastructure, let’s connect. #CarbonRemoval #ClimateFinance #CDR #NetZero #WEF2026

✋ Carbon Contracts for Difference (CCfDs) are policy instruments modeled on traditional Contracts for Difference, but linked to the carbon price instead of the electricity price. ✋They guarantee a fixed "strike price" for abated CO₂ emissions. If the carbon price is lower, the government pays the difference; if higher, the developer pays back. ✋The mechanism mitigates revenue risk for low-carbon projects that don't emit CO₂ but compete in carbon-affected markets. A new paper "Carbon contracts for difference design: Managing carbon price risk in a low-carbon industry" was published in the academic journal Joule 👉 The paper explores Carbon Contracts for Difference (CCfDs) as a tool to manage carbon price risk in hard-to-abate industrial sectors (like steel, cement, and chemicals) that are crucial for decarbonization as these projects often depend on unproven, capital-intensive technologies (e.g. green hydrogen, CCS) and face significant financial risk. 👉 Design Challenges: 1️⃣ Benchmark selection: Key to determining payouts; if poorly chosen, carbon price risk remains. 2️⃣ Fluctuating price-setters: Actual market conditions may diverge from the benchmark over time. 3️⃣ Reverse payments risk: If carbon-neutral tech sets the market price, CCfD beneficiaries may owe money. 👉 Policy Considerations: 1️⃣ Avoid covering OPEX unless justified—could reduce market efficiency. 2️⃣Use reduction factors and termination clauses to manage long-term risk. 3️⃣Complement CCfDs with tools like PPAs; tailor design per sector. 4️⃣ More quantitative research needed on risk magnitude and effective hedging. 👉 Full paper attached. 👏 Well done Authors: Alexander Hoogsteyn Kenneth Bruninx Erik Delarue 

𝗪𝗲 𝘀𝗵𝗼𝘂𝗹𝗱 𝗺𝗼𝘃𝗲 𝘁𝗼𝘄𝗮𝗿𝗱𝘀 𝗮 𝗺𝗼𝗿𝗲 𝗶𝗻𝗳𝗿𝗮𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲-𝗹𝗶𝗸𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗻𝗴 𝗺𝗼𝗱𝗲𝗹 𝘁𝗼 𝘀𝗰𝗮𝗹𝗲 𝗰𝗮𝗿𝗯𝗼𝗻 𝗽𝗿𝗼𝗷𝗲𝗰𝘁𝘀. I am grateful to the team at Bursa Malaysia Carbon Exchange and fellow climate champion Rene Velasquez for the opportunity to expand on this topic over the past few months.   Traditionally, most project-based carbon interventions are funded through equity, resulting in a high cost of capital, which is justified given the risk associated with such an investment. However, to scale project-based carbon markets, we should move towards a more infrastructure-like financing model, where various risks are mitigated well ahead of project implementation.   𝗪𝗵𝗮𝘁 𝗺𝗮𝗸𝗲𝘀 𝗮 𝗽𝗿𝗼𝗷𝗲𝗰𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗮𝗯𝗹𝗲? 1️⃣ 𝗖𝗼𝘂𝗻𝘁𝗿𝘆 & 𝗽𝗼𝗹𝗶𝘁𝗶𝗰𝗮𝗹 𝗿𝗶𝘀𝗸: Does the project have the required licenses and permits to operate in the host country; does the country allow for the development and export of these credits; does the host country have the capabilities and willingness to provide a letter of authorization and corresponding adjustments? Innovations in political risk insurance can help mitigate such risk.   2️⃣ 𝗠𝗲𝗿𝗰𝗵𝗮𝗻𝘁 𝗽𝗿𝗶𝗰𝗲 𝗿𝗶𝘀𝗸: Does the project have an offtaker for the carbon credits to mitigate the merchant price risk and to create higher certainty of future cash flows to allow for debt financing?   3️⃣ 𝗣𝗿𝗼𝗷𝗲𝗰𝘁 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 𝗿𝗶𝘀𝗸: Has the project developer and country successfully developed projects under the chosen Program and Methodology; is there insurance to cover project and counterparty risk from things like project abandonment, project underperformance, or project delays?   Projects that meet these terms are more likely to be bankable, able to raise debt financing, lower their cost of capital, and allow for project-based carbon markets to scale like infrastructure assets as opposed to one that currently looks like a venture investment.   Governments, developmental finance, and philanthropic capital are critical in helping de-risk investments through catalytic concessionary and first-loss capital at this stage of the market. #BursaCarbonExchange #climatechange #carbonmarkets #carbonoffsets #carbonfinance #netzerofuture

Most energy transition projects that fail to progress beyond capital allocation have one thing in common. They do not have clear stage gates, and both risk and commercial viability remain unclear to owners and lenders. In the Middle East and Europe, pressure is mounting to deliver renewables at scale with measurable short-term value. As part of my end‑of‑year energy transition playbook, I am sharing an example of a four‑step process that links technical, commercial and procurement decisions directly to investment milestones. Effective capital allocation depends on three actions: 🔹 Run system studies early, validating demand, power and costs before any FEED spend. 🔹Stress‑test dispatchability and tariffs, matching supply scenarios to contract structures and finance models to secure bankable offtake. 🔹Apply risk filters from day one, mapping mitigation measures and confirming business model fit before procurement commitments. This sequence connects capital with accountability. Time, cost and risk each have a checkpoint, reducing the chance of overruns and stalled decisions. Key takeaways: ▪️ Link early planning to bankability. ▪️Use clear gates for faster approvals and lower risk. ▪️Align commercial terms with operational readiness. How are you ensuring capital stays aligned with delivery risk in your energy transition strategy? #CapitalStrategy #EnergyTransition #ProjectFinance #RenewableEnergy #MiddleEast